All Forum Posts by: Jim Costa

Fees and cost for which loan?  Break the fees out and someone else can respond.  Fees seem excessive.  But that is part of running your numbers.  The hard numbers need to make since.  Your acquisition and holding cost are necessary and affect the bottom line.  You have to decide if time and money are worth the return.  If you called a hard money lender for the town home I would say call some more.  Prices and fees vary greatly.  Bank loan has buy downs for interest or refunds.  Maybe cost you 7K for 3.5% and 1K for 5% (these are extremes to show point).  You have to see where the numbers make since and what your long term goal with the property is.

Buy Right!      

I understand and follow you. I thought you can still do both. 100K @10% interest only for 1 year pay 2 points. Cost 2K up front. Borrow 100K for purchase and all repairs. Loan payment $833+$100taxes +$10HOA = $943 +30 insurance. If you fix up and get rented in 30 days you are out one payment. If you rent for $1050 it will cash flow $75/month for 1 year. After 1 year appraises for 130K. Refinance at 80% pay back private lender and fees for loan (104K) your payment drops from $833-$558 (5% non owner occupied 30 year fixed, I just got 4.5). New PITI $698 Rent for 1050. Cash flow $350/mo with no cash from you to buy 100% finance. This doesn't include management, vacancy, repairs etc... I wish I could find these in my backyard! If you wanted to make it happen you could.

Sean-  I agree with @Brent Coombs

If this is you first deal and you are nervous about over committing I understand. You can also find private investors here on BP that will loan you 100% of the funds based on ARV. You will pay a little higher percentage but keep in mind the numbers. If you have the talent an connections to do the repairs and sell or refinance you can make a nice return with just your time. You can make in 30-90 days on the town home what some people make in a year.

If you were local I would look at the numbers closer and visit the site.  I'm sure other local guys would do the same.

There are advantages in 1031.  I just did 2 and am in the process of closing my last 3 properties.   Your family home would have been perfect. You could have listed it (as a purchase)and had 6 months to close.  You could have done all repairs had tenant in before actually buying.  

A 1031 is great for upgrading your property into multi units for cash flow, sell SFR for 250K and buy 500K multi unit with nice down. It also becomes really handy for distributing your equity into multi SFR. Lets say you sell the same 250K and have 150K in equity. You can buy a 125K SFR all Cash. Puts you on the top of the offer list and in many times you will get the purchase even lower than other offers because no loan contingency. You can close in as quick as a week (still have to do title search and escrow). Take the remaining 25K and put 20% down on 2nd property and get loan for other 100K. You can still list another property as a backup in case the 2nd one falls through.

Actually in this price range. You can exercise 1031 option 2 and list properties up to 200% of value.  Sold for 250K list up to 500K of property.  If you are listing properties at 125K you can have 2 backups.

This was my first 1031 and like you Sean I did tons of research.  The all cash buying was an exciting adventure and gives you a great thrill and puts you in the drivers seat.  When you are buying investment property with tenants in place it goes very quick.   When you get towards the end and your last property requires a loan it gets a little more nerve racking.

a 1031 is a great tool when you are ready for the next step and trading up your investment properties.  

Good luck!

You may want to post your town home in the market place and see if you can find an interested party to partner with or flip.  Worse case find someone local that you give the deal to if they let you shadow them to complete the deal and learn from someone hands on using there money.   

The numbers look good for cash flow.  You should be able to make happen.  Partner or flip paper. 

to convert to a 1031 just rent out for 2 years and sell as 1031 not sure advantage if you have the option to sell as primary residence.  Maye if profit was over 250K but not in your case.

you can convert an owner occupy to a 1031.  There would be no reason to if you are going to sell in a couple years.  Your primary residence you can sell for 250K profit with no taxes.  1031 is strictly investment tax deferral.  Think of it as 401K rollover.  Buy primary residence keep and live in for 2 years then sell and use money for other investments.

For non owner occupied usually yes.  The bank will loan 80% sometime 90 depending on credit, reserves and property.  That doesn't mean you can't have the owner carry 20% or get the money from a heloc. This is why I mentioned the heloc from the beginning.  Very powerful and great resource.  How did you put your offer in?  As an owner occupy or investment.  If you are renting now It would make since to get an owner occupy loan on one of the properties. 

You don't want to get into legal trouble with your loan.  Usually the rule is what is your intention when you buy.  If you already rent the home or are living in the home It would be reasonable for you to owner occupy and take advantage of an owner occupy loan.  It could be a couple months later and your situation changes.  You found the house is to small or too large.  You might find another house that is closer to work or family or kids.  

Owner occupy the home first.  This is the best rates and most flexibility.  It is not unheard of to get seller credits for repairs.  Maybe instead of 120 you pay 130 with 10K in seller credits for carpet, paint, counter etc... This gives you a 10K check at close of escrow!

You mentioned you wanted to buy smaller value properties.  what are the numbers on the town home?  

One of the big differences between owner occupy and investment property is how the loan affects your numbers.  I'm not talking interest rate and down payment which is a huge impact but how the bank will look at your next deal.  

If you buy the family home first you go in with little to no money which is great.  You qualify for the loan based on your income.  For whatever reason you may even get it rented in the next 3 months.  You now want to buy the bank town home (If you have an accepted offer they probably won't wait six months for you to get your finances lined up).  You will have to qualify for the loan on 2 mortgages without being able to use the rental income.  Conversely, if you buy the town home first as an investment property you can get rented and they will count the mortgage against you but likely use about 65-70% of the rental income to qualify for the personal residence.  

Recent underwriting has changed in my experience.  If you weren't a seasoned investor (other rental property)  they would not use the rental income until it showed up on your taxes 1 year later.  Now they use the rental income if it is within the same year you  buy it.  After the first year they will use what you report on your taxes. 

It is easier to qualify for an owner occupied loan.  Not knowing your financial situation, for most people, if you want to buy both properties it will be easier to buy the town home first.  Specially with the flexibility of seller for home.  What I mean is, If the numbers work for the town home and you qualify for a loan you are likely able to qualify for the owner occupy.  If you qualify for the owner occupy you won't necessarily qualify for the investment.  You can always get private money lending for one of the loans or down payment.  Depends if the numbers work.  Look at a partner before walking away.  Something is better than nothing.

Sean, You have to decide what your end game is.  Why are you buying this property?  Are you buying to make some cash and put in your pocket or are you buying to start your retirement and financial freedom income.  Nothing wrong with either one but the strategies are much different.  If you just want some cash and not pay taxes make your primary residence for 2 years and sell at the end of 2 years.  If you are looking to start your real estate investment career than this is a great property with many options stated above.  What is your next step and plan?  Do you want to buy another rental property that is similar to rent out or do you want to buy a larger property, duplex to 4-plex+.   Once you have owned the home for investment purposes (rental), (most people agree 1 yr and 1 day) it goes from short term to long term investment.  Because you rented out you no longer get the $250K capital gains exclusion for primary residence but you get the 1031 tax deferral.  As long as you buy another property that is worth more than the one you are selling you can roll over all the proceeds into another property.  This is how investors go from a single family to large apartment complex or multiple homes.  

Example:

If you buy a house for 100K (100% loan of 100K) after 1-2 years sell for 200K. You now buy a duplex for 250K (150K loan @ 60% ltv) and 1031 all your money.  After 1-2 years Sell for 300K and buy 4 Plex for 500K (350K loan at 70% ltv) after 1-2 years sell for 600K buy an 8 plex for? 

or a 1031 also lets you buy 3 homes for the 1 you are selling or 200% of value.  You can look up the rules actually 3 option.

Buy a home for 100K keep for 2 years and sell for 200K.  Take your 100K in equity and buy 3 150K homes with 20% down. 

Now own: 

1 150K- 20% down 120K mortgage.  

2 150K- 20% down 120K mortgage.

3 150K- 20% down 120K mortgage. 

Based on these numbers you would pay boot (taxes) on the 10K that wasn't used for the loans but in reality with appraisals closing costs fees you will probably spend the 10K  If not pay the small tax or increase your down payment on one property.

You get the picture

Bottom line is work backwards or at least from your next step.  What do you want to accomplish next and make the decisions now to get you to that next step.   

Asma, did you read my previous post?  That $175 can buy you another property with zero cost to you and allow you to pay off your first property before the 15 year amortization payment, without having to add funds.  If you take one step further and apply the same payment for your paid house at 165 months and start applying to your second home.  You will have 2 properties paid for free and clear in 18 1/2 years.   

I mentioned this because you said you wanted to buy more property.